Shares rebounded on Tuesday after another profit warning
raised concerns about the health of US consumer and corporate inventories.
Until the morning, the
Dow Jones industry average
gained 28 points or 0.1%. That
rose 0.2%, and the
up 0.4%. The indices were all in the red earlier in the day.
First the bad news:
Target (Ticker: TGT) announced Tuesday morning that it is introducing additional discounts and canceling orders because it has built up too much inventory. Simply put, the company has too many products in stock and needs to both lower prices and cancel orders for new goods. The company mentioned that the worst damage is occurring in more discretionary categories like household goods, while more essential commodities like food and beverages are strengthening. This comes after the market first learned of the issue in the company’s most recent earnings report. The stock fell 1.3% on Tuesday and 35% for the year.
This isn’t just a Target issue. Some on Wall Street have worried that companies that build up inventory quickly – as supply chains have been constrained – will end up with excess inventory. Then they would have to lower prices, especially since already elevated prices and rising interest rates make it difficult for consumers to spend money. As a result shares of
(TJX) saw its shares fall.
The price cuts could be a sign that some of the red-hot inflation hitting the economy will correct itself, but global central banks are taking no chances. On Tuesday, the Reserve Bank of Australia raised its policy rate by 50 basis points, or 0.5 percentage point, higher than the 0.25 to 0.4 percentage point expected.
Next, the Federal Reserve could aggressively raise interest rates. The Fed’s latest minutes showed that the central bank could slow the pace of rate hikes if economic growth slows. But there are growing signs that inflation is not falling fast enough. Now the 2-year Treasury yield has risen to 2.72% from May’s low of 2.47%, while futures market prices are up half a point through September. This also buoyed the US dollar gain, with the US dollar index up 0.1% on Tuesday.
“With … 100 basis points of Fed rate hikes this summer, buy bonds and/or sell the dollar at your peril,” wrote Kit Juckes, macro strategist at Société Générale.
There is some good news: 2-year yields and the dollar are both well below their intraday highs, giving the stock market some consolation that rates and the greenback can’t go much higher from here.
Some stocks moving on Tuesday:
(KSS) shares rose 12% after the retailer entered exclusive negotiations
(FRG) on a possible sale of the department store chain, which values Kohl’s at almost 8 billion US dollars.
(TWTR) rose 0.8% after falling 1.5% in the previous session after Elon Musk said the social media company was in breach of its merger agreement with the
(TSLA) Chief Executive, reducing the chances of the deal going through.
(AFRM) extended losses into Tuesday, before falling 1.2% thereafter
(AAPL) announced a “buy now, pay later” product called Apple Pay Later at its closely watched annual developer conference.
(NVAX) was up 6.2% before being halted before an FDA panel on its Covid vaccine.
(BTU) rose 8.7% after being upgraded to buy from hold at Jefferies.